Can Islamic Economics Cure the Crises of Modern Capitalism?

Can Islamic Economics Cure the Crises of Modern Capitalism?

Key points

• Based on the works of Javed Ahmad Ghamidi, Dr Shehzad Saleem has written a number of articles on the economic law of Islam.
• Contrary to traditional beliefs, banks create funds out of thin air at zero cost, a reality acknowledged by both Modern Monetary Theory and leading Islamic economists.
• Despite other differences, Shehzad Saleem and Asad Zaman agree that banking leads to the concentration of wealth.
• The late Umar Chapra, one of the most prominent names in modern Islamic economics, stood for the imposition of other taxes.
• There is criticism that Islamic economics ought to address contemporary economic problems instead of peddling in identity politics (à la Timur Kuran).

Based on the works of Javed Ahmad Ghamidi, Dr Shehzad Saleem has written a number of articles on the economic law of Islam. He argues that Islam has provided broad directives instead of an economic system that appends Islamic terminology to capitalism. A number of Islamic economists concede that Islamic banking is based on riba (interest).

Saleem argues that "interest-free banking" is an oxymoron based on the analogy that running a bank without interest is like resuscitating a human being after cutting his jugular vein.

Contrary to the textbook economics idea that banks collect deposits to loan out, they create funds out of thin air at zero cost. Modern Monetary Theory (MMT) has already shown that, and Islamic economists like Asad Zaman agree.

Banks can always borrow at a lower cost from the central bank and loan out at a higher interest. This means they always profit with straightforward capital. They have no skin in the game, be it for speculation in real estate or the stock market. The capitalist system is inherently prone to financial crises.

As they profit from creating dependence, the brothers Zaman (Arshad and Asad) have argued that the powerful retain the interest-based system. Saleem references an analogy from Sheikh Mahmood Ahmad that foreign aid is like pushing drugs: it creates dependence, and the cost (interest) extracted goes up. He makes an interesting observation that mental servitude arises with such dependence (economic slavery).

Banks collect funds from numerous small depositors but loan out to a few sizeable capitalists, translating economic power into political power-a concentration of wealth that Islam outright condemns.

Despite other differences, Shehzad Saleem and Asad Zaman agree that banking leads to the concentration of wealth. This is since banks collect capital from plenty of small depositors but loan out to a few substantial capitalists. The economic power of the latter translates into political power. No wonder Islam condemns the concentration of wealth and instead advocates its circulation. Can CPEC 2.0 Cure Pakistan's Pharmaceutical Dependence?

Both agree on the idea that the banking system restricts credit to those with collateral. Plenty of capable projects from brilliant young minds go unfunded as the funds are channelled towards rich capitalists.

Both additionally agree that riba is not confined to personal loans. As going to a professional moneylender brought shame on the tribe, saleem references Amin Ahsan Islahi, stating that loans in 7th-century Arabia were for commercial purposes. Thus, Saleem argues that whilst we are rightfully moved by the exploitation of the indebted through interest, we additionally need to look at the systemic exploitation through the interest-based system.

There is some difference of opinion on Ghamidi and Saleem's argument that zakat is the only tax imposed by the Islamic administration to backing the public interest (welfare state). The late Umar Chapra, one of the most prominent names in modern Islamic economics, stood for the imposition of other taxes.

Asad Zaman views the role of the administration as secondary and instead emphasises the role of the community in providing social services. He highlights the role of awqaf (endowments or trusts) in this regard and contrasts them as institutions of public cooperation with banks as institutions of private accumulation.

Ghamidi and Saleem's opinion on taxes has merit considering the abuse of tax power by the modern administration. As Ibn Khaldun and other scholars additionally pushed back at the encroachment of the Caliphs, this has precedent in Islamic history. Both then and now, the problems of transparency and public accountability remain.

Islamic economics is notorious for heavy disagreement amongst its advocates, especially as there is no consensus on the particularly definition of the subject. Zaman provides a list of 30 different definitions.

There is criticism that Islamic economics ought to address contemporary economic problems instead of peddling in identity politics (à la Timur Kuran). Salman Ahmed Shaikh critiques that juristic differences create loopholes for zakat. There is already an admission that ruses are applied for interest. Beyond The Absurd: Why Modern Existentialism Needs Islamic Philosophy.

Shaikh argues that labour is exploited in a number of Muslim countries and little trade occurs amongst Islamic countries. Both conditions do not bode well for an Islamic economic union. So much for the ummah (community).

Overall, despite its various criticisms, Islamic economics remains one viable heterodox alternative to mainstream capitalist economics, alongside approaches that backing decolonisation, MMT, and degrowth.

If anything, it condemns the concentration of wealth, calls to treat resources as amanah (trust), bans the oppressive interest-based system, rejects israf (extravagance) and tabzir (waste), and teaches against both covetousness and obscene display.

If all it does is shift the focus from rampant consumerism to simple living, values, and morality, then it has done its part in curbing the major ills of our time-financial crises, ecological imbalance, and inequality.

In short, can Islamic Economics Cure the Crises of Modern Capitalism? Is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.